The Daily Screen: The Best Utilities Funds

Today's Daily Screen turns its attention to utilities funds, where there's a bit of a payback theme playing out.

The upshot: A lot of utilities funds loaded up on high-octane wireless and telecommunications stocks last year to goose returns, but telecom stocks are cratering, bringing those higher-octane utilities funds down with them and allowing more diversified utilities funds to shine.

This year, utilities funds on average have been a shelter from the market's storm, gaining 5.2% compared with the S&P 500's 8.7% drop. We'll look at the leading utilities funds over the last three years and the stocks that have put them in the lead.

Beating the Index Utilities funds have done what they were supposed to do in this down year
	Utilities Fund	S&P 500
YTD	5.2%	-8.7%
3-Year	16.3	13.9
5-Year	16.1	20.6
Source: Morningstar and Baseline. Performance figures are annualized through Oct. 18.

The concept of high-octane utilities funds might surprise some folks. Deregulation (translation: heightened competition and consolidation) has morphed the utilities sector into a growthy area, as opposed to its traditional tag as a refuge for "widows and orphans." Consequently, there are those utilities funds that spread their money around the sector and those that focus heavily on sizzling sectors like telecommunications -- the average utilities fund has only 43% of its money in utilities, according to Morningstar.

But there's a broad range of returns within the category. Last year's leader, no-load (LDUTX)Lindner Utility, which rose more than 60% in 1999, is down 7.6% so far this year, trailing its average peer by some 12 percentage points. If you're looking for a more traditional utilities fund, you might consider those we've turned up. We sifted the category for those that beat their average peer over the last one- and three-year periods. Here's the top 10, ranked by one-year return.

Big Utes The utilities funds that have bested the broader market in recent years
Utilities fund	1-Year Return	3-Year Return
(IUTLX)Galaxy II Utility Index	39.1%	20%
(GASFX)American Gas Index	34.1	16.8
(VKUCX)Van Kampen Utility	31.3	20.8
(PRUAX)Prudential Utility	29.7	16.7
(MMUFX)MFS Utilities	25.7	19.6
(CUTLX)Liberty Utilities	25	20.1
(EVTMX)Eaton Vance Utilities	24.1	22.1
(AUTLX)AIM Global Utilities	23.9	17.5
(EVUAX)Evergreen Utility	21.5	19.1
(GUTAX)MSDW Global Utilities	21.5	22.6
Avg. Utilities Fund	14.7	15.6
S&P 500	8.1	13.9
Source: Morningstar. Annualized performance figures through Oct. 18.

There's something here for everyone: two no-load index funds at the top of the list (American Gas Index is one of the better fund names out there, eh?), followed by a slew of broker-sold, actively managed funds. The list includes MFS Utilities, a broker-sold fund run by Maura Shaughnessy, who's considered one of the top utilities gurus. Check out her thoughts on the sector in this 10 Questions interview.

When we scan the list of top holdings among these top 10 funds, we find -- surprise, surprise -- utilities stocks. That said, there is a telecom stock, SBC Communications(SBC), and some companies that are getting into the hot communications networking business like top cumulative holding Enron(ENE) and Williams Companies(WMB).

Under the Hood The stocks with the biggest weighting in the combined portfolios of the above 10 funds
Stock	Weighting in Top 10 Funds	Number of Top 10 Funds Owning the Stock
Enron(ENE)	3.8%	9
Duke Energy(DUK)	2.5	9
SBC Communications(SBC)	2.5	8
Williams Companies(WMB)	2.2	8
El Paso Energy(EPG)	2.1	8
Coastal(CGP)	2	6
Calpine(CPN)	2	5
Dynegy(DYN)	1.8	7
AES(AES)	1.8	7
Columbia Energy Group(CG)	1.5	7
Source: Morningstar. Holdings as of funds' most recent portfolio reports.